Suntory Beverage to Hold Back on M&A as Japan Competition Rises

Suntory Beverage & Food Ltd. (2587), the Japanese drinks maker that had Asia’s biggest initial public offering in 2013, plans to hold off on acquisitions for a year as it integrates past deals and bolsters existing operations.

The company will consider issuing stock if its future dealmaking should exceed an initial budget of 500 billion yen ($4.9 billion), President and Chief Executive Officer Nobuhiro Torii said in an interview in Tokyo yesterday. The company could also sell bonds to raise funds, he said, adding that it has no specific plans so far.

“I don’t think we have enough capacity or ability to pursue another opportunity at this point,” Torii said yesterday, referring to acquisitions. “At least I have to take a break for 12 months.” After that, “if we deliver the plan in the next year, then our financial capability will grow.”

The Tokyo-based seller of Orangina soda and Boss coffee cut its profit outlook in November on rising marketing costs to boost domestic sales and Europe’s economic slump. The company, which began trading in July after raising about $4 billion, faces an aging population and competition from larger rival Coca-Cola Co. in the local market.

“I think it’s a good thing,” Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., said of the company’s plans to hold back on deals. “This year’s profit is a little bit lower than investors’ expectations, so they should focus on improving its profitability.”

Photographer: Junko Kimura/Bloomberg

While Suntory is taking a break from acquisitions, Nobuhiro Torii, president of Suntory Beverage & Food Ltd., said dealmaking is ‘‘opportunistic’’ so it is still possible the company will do acquisitions within the next year. Close

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Photographer: Junko Kimura/Bloomberg

While Suntory is taking a break from acquisitions, Nobuhiro Torii, president of Suntory Beverage & Food Ltd., said dealmaking is ‘‘opportunistic’’ so it is still possible the company will do acquisitions within the next year.

Suntory Beverage rose 0.9 percent to close at 3,270 yen in Tokyo trading yesterday, while the broader Topix index gained 0.5 percent. The stock is now 5.5 percent above its IPO price.

While the company is taking a break from acquisitions, Torii said dealmaking is “opportunistic” and it is still possible the company will do acquisitions within the next year.

Lower Forecast

Net income will probably be 31 billion yen for the year ending December, lower than its previous forecast of 35 billion yen, the company said in November.

“It’s perceived among investors as a stock that has high potential for overseas growth, so it’s not too late to wait and focus on existing businesses to win back investors’ trust before they go for acquisitions abroad,” said Mizuho Asset’s Aoki. “Investors would find it easier to invest in the company that way.” He declined to say if he currently owns the stock.

The Japanese market is the most important for Suntory Beverage and the company plans to stabilize its business and strengthen existing operations as competition intensifies, Torii said. Japan’s government will raise the sales tax to 8 percent in April from 5 percent at present.

Photographer: Kiyoshi Ota/Bloomberg

The Suntory Holdings Ltd. logo is displayed on the bottle cap for Suntory Beverage & Food Ltd.'s flavored water in this arranged photograph taken in Soka City, Saitama Prefecture, Japan. Close

The Suntory Holdings Ltd. logo is displayed on the bottle cap for Suntory Beverage &... Read More

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Photographer: Kiyoshi Ota/Bloomberg

The Suntory Holdings Ltd. logo is displayed on the bottle cap for Suntory Beverage & Food Ltd.'s flavored water in this arranged photograph taken in Soka City, Saitama Prefecture, Japan.

“There will be very, very intensive competition before the tax increase,” Torii said, without elaborating on the impact to the industry. “We should not hesitate to fight against competitors before the tax will be increased. Again, it’s quite important for us to put money in the existing market probably next year.”

Overseas Deals

Suntory Beverage had a 20 percent share of Japan’s non-alcoholic drinks market in 2012, the second-biggest after Coca-Cola’s 28 percent, according to research company Inryosoken.

From the 500 billion yen budget for acquisitions, Suntory Beverage has already earmarked 1.35 billion pounds (225 billion yen) in September for the purchase of the Lucozade and Ribena drink brands from GlaxoSmithKline Plc. If future deals should top its budget or financial capability “issuing new stock can be one option,” Torii said. “But it’s too early to say.”

Suntory Beverage’s next area of focus would be in Vietnam and Indonesia which “are still rapidly growing,” he said. The company gets about 30 percent of its sales from overseas.

Photographer: Matthew Lloyd/Bloomberg

Out of the 500 billion yen planned for acquisitions, Suntory Beverage & Food Ltd. has already earmarked 1.35 billion pounds (225 billion yen) in September for the purchase of the Lucozade and Ribena drink brands from GlaxoSmithKline Plc. Close

Out of the 500 billion yen planned for acquisitions, Suntory Beverage & Food Ltd. has... Read More

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Photographer: Matthew Lloyd/Bloomberg

Out of the 500 billion yen planned for acquisitions, Suntory Beverage & Food Ltd. has already earmarked 1.35 billion pounds (225 billion yen) in September for the purchase of the Lucozade and Ribena drink brands from GlaxoSmithKline Plc.

“I would rather invest more money in those countries,” he said.

Domestic Market

Suntory is a household name in Japan, selling drinks from canned coffee to beer, sponsoring TV shows, and operating its own fine art gallery and concert hall.

Torii, 47, is a great-grandson of Suntory Holdings founder Shinjiro Torii and one of the highest-ranking family members of the group. A former banker at the Industrial Bank of Japan, he joined Suntory in 1997 and became the president of the soft-drinks unit in 2011.

The soft-drinks seller is 60 percent-owned by Suntory Holdings Ltd., a closely held maker of whiskey and beer. Nobutada Saji, 68 years old, is the head of parent Suntory Holdings and has said he wants to give up his position to a successor suited for global business.

“The role I’m playing is quite big now,”Torii said yesterday when asked if he might take on a bigger position within the parent group where he is a board member. “As an independent listed company, I would love to take this important role at least for another couple of years.”

To contact the reporters on this story: Matthew Winkler in New York at mwinkler@bloomberg.net; Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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